April 22, 2024 • 24 mins
Featuring:
Max Bondurri, Founder & CEO of SGMC Capital, joins us from Singapore to discuss Asia fixed income markets.
Vicki Chi, Asian Equities Portfolio Manager at Robeco, sits down with us in Hong Kong to discuss her perspective on Asia markets.
Dana D'Auria, Co-CIO at Envestnet, shares her US market insights.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
You can join Brian Curtis and myself for the stories,
making news and moving markets in the Apec region. You
can subscribe to the show anywhere you get your podcast
and always on Bloomberg Radio, the Bloomberg Terminal, and the
Bloomberg Business app.
Speaker 3 (00:27):
Max Bonduri, Founder and CEO of SGMC Capital, for a
closer look at the markets, we seem to have entered
a risk off period here, Max, what do you think
is the cause of that?
Speaker 4 (00:40):
Well, the main one, of course is the geopolitical tensions
that we have seen in the Middle East unfortunately, and
if you couple that with the fact that we have
seen inflation numbers remaining higher than what most people anticipated,
and the fact that again these tensions could create the
create an appward spiral with respect to further pressures upside
pressures to the inflation level, then of course this is
(01:03):
why you're seeing quite a bit of risk of that
we have experience over the last in days. And you
couple that with the fact that we've had a strong
start of the year, actually coming off a pretty strong
year all of last year. Then it makes sense for
global investors to start taking profit reducing risks and taking
a look on what is going to happen next.
Speaker 2 (01:21):
Does it confound you a bit that inflation is proving
to be as sticky as it is? I mean, and
here we had one of the FED presidents last week
was Austin Goolsby of Chicago saying that basically the story
on inflation is stagnated. I mean, he's basically saying it's stalled.
Speaker 4 (01:40):
Well, we're not surprised. Every time we spoke last November,
last December, we always said that the FED was going
to cut two maximum three times, so we were never
in the seven to eighth camp. That's because again, going
from an eight nine percent inflation to a four or
five percent inflation is pretty easy. Going from four to
five down to two, which is what the FED wants,
that's a lot lot harder. So we're not surprised obviously.
(02:04):
Now the main question is are we going to be
floating around the current levels gradually declining or are we
going to see a further spike because of everything that
we have been seeing in terms of tension and just
overall demand and supply scenarios, because in the latter case
then that could be quite worrisome for markets because you know,
(02:25):
some banks out there actually starting to talk about hikes.
Now we're not in that camp. We still see about
two cuts, like we've said last year, but clearly it's
a whole difference scenario would respect to what most investors
were expecting in Genuary.
Speaker 3 (02:38):
So it's a dual mandate. The labor market is a
lagging indicator, and it seems like the Fed is waiting
to see you know, what happens with labor. If the
Fed waits until it actually weakens, might that be too late?
Is there a real risk that it waited too long?
Speaker 4 (02:56):
That could be the risk. And to be honest, up
until now, the market has managed to cope with the
changes in expectations quite swiftly, because if you see again,
we went from seven to eight cuts expectations to less
than two by the end of the year and markets
have fared quite decently up until again last week before
(03:16):
the geopolitical tensions. In terms of macroeconomic risks, then yes,
of course, if the FED waits too long, that could
be a little too much. That is again why we
do expect the FED to start doing something and at
least again those one or two cuts this year, But
a lot is going to be dependent on data. We're
seeing growth remaining strong and robust, and that is why
(03:38):
you know the FED is not in any particular rush,
but they will eventually have to do something in order
not to try and break something within the system.
Speaker 2 (03:47):
So do you use this opportunity maybe to reduce your
exposure to the US just a little bit. Maybe you
look at Europe right now, we're talking about a potential
rate cut from the ECB. Germany's shows a little sun
line of maybe improvement. Do you maybe try to get
exposure to underloved markets right now and sell the US.
Speaker 4 (04:09):
Yes, a bit of a rotation makes a lot of
sense from a monetary perspective. Like you've correctly mentioned, the
ECB is going to be acting sooner. They're going to
be more accumulative than the facts, so that could provide
a little bit of support of the markets going forward.
So a bit of rotation out of the US and
into Europe does make a lot of sense, especially because
getting out of the US would normally mean taking quite
(04:31):
a bit of profits, So that is always something that
makes a lot of sense. That being said, the growth
remains a lot stronger in the Yes, if you're looking
at longer term perspective, the US remains the more attractive
market before we do stick with the core exposures within
the US, But of course we have been trimming a
bit of quite a bit over the last few weeks.
Speaker 3 (04:53):
Jeffries pointed out late last week something interesting that net
interest payments for the US corporate sector have actually declined
over this tightening cycle. And that's because the large cash
balances of the big tech companies, combined with listed corporates
refinancing or turning out their debt, and also households did
(05:13):
sort of the same thing. Do you see that as
a positive That maybe doesn't get as much discussion as
it could.
Speaker 2 (05:22):
Well.
Speaker 4 (05:22):
Corporates in general have been a lot more prepared this
time round for the current let's say slow down, even
though slow down in growth is not exactly that, but
in terms of environment with respect to interest rates, they
have been cutting their expenses a lot earlier and a
lot more proactively than it was in the past cycles.
They've probably learned from the past, and even as you
(05:44):
correctly pointed out, from an interest rate payment they have
been doing what they had to. Of course, the large
tech companies are going to be skewing the results a
little bit on one side, but in general, corporates have
been acting quite well and that is probably why you
seeing growth and in general earnings come out pretty decently
(06:05):
and pretty robustly, and that is what is keeping the
economy afloat even though rates are remaining high.
Speaker 2 (06:11):
So I'm curious to get your take on what you're
seeing in China these days. I mean, we were talking
last hour about how disappointing some of the monthly activity
data was for the month of March. I'm thinking industrial
output and retail sales. Yeah, there's a big question mark
over the Chinese consumer. Yes, we know the property market
is still in the process of de leveraging. Is there
(06:32):
enough that would interest you in putting new money to
work in China right now?
Speaker 4 (06:38):
At the moment, it's difficult to increase exposure to China
because once again we know that it's weak and probably
a lot of the negatives are out there. But from
an economic perspective, we're not particularly worried. Yes, we are
obviously in a weak environment and it's likely to remain
that way. But what we need again before putting more
money to work is having more visibility with respect to
(06:59):
the business environment, with respect to the rules and regislations
which are going to be taking place in China, and
with respect to the overall support for the market that
the government and the local authorities are going to be provided,
because again this is the real risk when you have
very little visibility with respect to what is going to
(07:19):
be happening on that front, and that is when you're
going to be then finding yourself holding an industry or
sub names which on paper look very good and in
terms of prospects look very good, but then because of
changes again in the rules or legislations or requirements, then
all of a sudden that play doesn't look so great.
Speaker 3 (07:35):
Yeah, okay, Max, you talked a little bit about rotating
into Europe. What would be your top conviction call at
the moment?
Speaker 4 (07:44):
Well, currently, obviously in the fixed income space, locking in
some of the yields makes a lot of sense. Don't
go too high on the duration risk, and don't go
high actually on credit risk because the credit risk spread
is not particularly interesting. But do look to add the
fixed income exposure in the four to six years kind
of maturity. That for us makes a lot of sense
(08:06):
in terms of the equity we do after the current
correction remain constructive because as mentioned again, growth and numbers
remain decent and robust. But take exposure in a risk
adjusted way before We do prefer long calls rather than
outright purchases. That's because again you are exposed to the upside.
We only have a limited downside should things decline, and
(08:29):
do have a hedging mechanism in mind, whether that's called,
whether that's oil, depending on how your portfoliosposition should and
hopefully not, but should geopolitical tensions rise and.
Speaker 2 (08:41):
Very quickly, Max thirty seconds walk about economics. How are
things in the Lion City right now? How are they doing.
Speaker 5 (08:48):
Well?
Speaker 4 (08:49):
They're doing well, And in terms of perspectives given the
change in leaderships, there's a lot of optimism going around
against Singapore with always a safe harbor in times of
uncertain and that is likely to prove true again going
forward given the environment that we're living.
Speaker 3 (09:05):
Max, thank you very much for joining us. Max Bonduri,
founder and CEO of SGMC Capital, chi Asian Equities portfolio
manager at Rebecco. So Vicky one interesting idea here global
supply chains are always in flux, and at the moment,
(09:29):
moving out of China into other parts of the Asia Pacific,
is that an area perhaps that can be exploited.
Speaker 1 (09:35):
If so, Rare, good morning, Brian Senas to be here
in the studio. Yeah, so this is really what we observe,
and I think a lot of stocks have done really
well in Asia outside China in the manufacturing space. What
we are noticing is that as manufacturing move out of China,
the supply chain further relocates. We noticed that there is
(09:59):
actually capacity shortage for manufacturing outside China. So in China
there is oversupply, but outside China there is not enough supply.
So this benefits a lot of companies in the manufacturing
whether there's light manufacturing or heavy manufacturing space within Asia Pacific.
And we're actually seeing very good share price performance. But
(10:21):
this is obviously not a one thematic that people have
grouped together. So compared to the attention that people have
been paying on AI and on semiconductor supply chain relocating,
I think this would be a very important opportunity for
people to not to miss that there is so much
a growing manufacturing power within Asia Pacific that is not
(10:46):
to be overlooked and obviously very good out of opportunities
for investers.
Speaker 2 (10:50):
So is that South Asia aussion and I'm thinking Vietnam,
but I'm also thinking Indonesia. Are there opportunities for more
manufacturing and Indonesia absolutely so.
Speaker 1 (11:02):
There has been this very interesting data that came out
last week that talks about FDI growth in Indonesia for electrical,
industrial and machinery segments. So that number stood at thirty
five percent year on air, and I think these kind
of numbers typically don't get the headlines, but Indonesia as
(11:24):
a manufacturing upgrade destination is definitely firmly in play. Also,
I think not to forget that actually not large in
terms of marketcap, but in terms of significance for Korea
and Taiwan, there are still very interesting manufacturing opportunities and
actually quite a lot of stocks have done really well
(11:45):
in this space and people just probably paid less attention
to them. And I think going forward, as it is
becoming more of a consensus for more industries to start
relocating outside the China supply chain, there would be opportunity.
Speaker 3 (12:00):
We've always had a Korea discount for various reasons. Some
geopolitical apparently you think that's changing. Now do you think
why why is Korea undervalued at the moment.
Speaker 1 (12:11):
That's a great question, Brian, so I think if we
do nothing, just keep going the way it did, the
career discount is highly unlikely to narrow. So what market
has noticed is obviously this value of program in Korea,
and the career market has responded with great enthusiasm into
(12:33):
the announcement of the news because people recognize that in
Japan we have seen this before. But knowing that in
Japan this it took about eight years before improving corporate
governance and shareholder returns become a sort of consensus in
the Japanese corporate world, it's going to take a long
(12:54):
time in Korem before this actually becomes a real consensus.
This has been a top down drive in Korea, and
what we're seeing is when we speak to companies, there
is a very large difference between the management that are
open and actively thinking about improving shareholder returns by taking
(13:16):
concrete actions to increase payout or improve let's say, the
corporate return profiles, whereas there are companies that basically don't
really care about returns, and if you ask them, they
would say, oh, we have our CAPEX programs, we're going
to invest in one, two, three, and there's no change
to us. So it's going to make a huge difference
(13:38):
for investors whether you're buying those companies that are open
to change and well show concrete actions versus those that
are highly well stable and not changing their attitude. And
we have seen that divergence in the Japanese stock market
very very obviously, so I would expect the same to
happen in Korea. And with the hype kind of going
(14:02):
off a little bit from the from the stock market,
I think there is great opportunity to.
Speaker 2 (14:07):
Make you mentioned Japan, Vicky. I'm wondering if Japan in
any way benefits from the move to diversify out of China,
and if so, how does that manifest.
Speaker 1 (14:17):
It is definitely happening. So Japan has tremendous technology reserves
in many of the manufacturing industries. Uh, it's all pretty
well known. So there's there's machinery, there's obviously semiconductor supply chain.
So I was in Japan in February this year, and
there's obviously tremendous in susiasm for TSMC's new fab in Koshue,
(14:42):
and a lot of related suppliers in Japan have responded
very positively to be able to supply TSMC and this
new fab from within Japan. So the whole supply chain
is very enthusiastic about this development. And there's definitely a
lot of investments going in and there is marketing share
(15:03):
to be taken, so Japan is definitely one of these destinations.
Speaker 3 (15:07):
All right, Vicky, thanks very much. We note for our
audience that you're a little cautious on AI and we'll
save that for our next discussion, which hopefully won't be
too long. Vicki Chi with us age Equities portfolio manager
at Rubeco Dana Doria Cocio invest Net to take a
(15:32):
closer look at the market. It's always good on a
Monday morning to have kind of a lofty discussion data.
We can also get to the news flow as well,
but I'll start off with how the Fed looks at
its mandate, because there's been a lot of discussion of
this of late. Of course, many say that the Fed
waited too long to start raising interest rates, So one
of the interesting questions now is will it also wait
(15:54):
too long to start cutting to avoid a downturn or
will it act early with the feeling of Christians. I'm
curious about your tike.
Speaker 6 (16:05):
Well, I think there's more danger of them waiting too
long than the other way around. I think the FED
is going to be more concerned about letting inflation tick up.
Obviously they can't control what's going on in the global
arena and causing oil prices energy to spike, you know,
which is giving them some consternation around inflation. You do
see wages kind of holding setting and you know growth
(16:28):
there going down, so I think you know they're not
You do hear people asking, hey, are they actually going
to hike rates.
Speaker 5 (16:34):
I don't see that. I can't imagine that they really
want to do that.
Speaker 6 (16:37):
I think that would demonstrate, you know, kind of a
failure in the policy.
Speaker 5 (16:41):
But I do think they'll hold.
Speaker 6 (16:43):
For longer, and you know that may well mean that
we court recession more than you know, higher inflation.
Speaker 2 (16:49):
Yeah, the notion of a hike, that's something that John
Williams brought up last week, which I thought was interesting
as well. And then you heard from Gules be Austin Goolsby,
the head of the Chicago Fed last Friday, who was
saying essentially that progress on inflation has stalled. That may
have been a bit worries. So I guess we'll get
some clarity this week with the PCE data for the
(17:10):
for the month of March. Where do you see this
fight in inflation right now? Do you personally think there
is upside risk?
Speaker 5 (17:17):
Well, yes, I do.
Speaker 6 (17:19):
I mean, just just always being a student of kind
of what's happened historically, right and trying to put the
context around it.
Speaker 5 (17:24):
I mean, you know, it did obviously.
Speaker 6 (17:27):
We had inflation increased very fast and abruptly and then
you know, kind of calmed down in the same way.
But we know historically that inflation doesn't tend to get
tamped down. It can kind of rear back up once
it's once it's spiked. So I do think there's a
danger that, you know, and especially too, as I say,
we look at energy prices, right, so obviously commodities.
Speaker 5 (17:48):
You know, experiencing a spike. It's exogenous due to what's
going on, you know, in war zones, and the.
Speaker 6 (17:55):
Federally has no control over that obviously, right, they have
control over the rate.
Speaker 5 (17:59):
So I do think there's you know, the.
Speaker 6 (18:01):
Possibility that inflation remains stickier than we want it to
and two percent, I think was always kind of a
difficult target. Everybody sort of put that in the back
of their heads. I think, you know, January, we're at
a point where we're expecting six rate decreases this year,
which I always thought was just kind of the market
didn't seem to have a good rationalization for that though,
(18:23):
because you were expecting a swoft landing and you are
also expecting you know, rate costs.
Speaker 3 (18:29):
Yeah, that's why I think you've had this development of
these alternative scenarios that Ben Bernanki has recommended to the
Bank of England, and it's because the FED has found
itself on the back foot because it's putting out a
sort of view that is based on one idea. And
what Bernanki is saying is that since no one really
(18:50):
knows what the economy will do, why not give investors
scenarios and what you might do in those cases. Now
I understand that, but I wonder if it's really all
that different from saying you're data dependent.
Speaker 6 (19:04):
Yeah, I think there's always attempts to shed light and
you know, be as transparent as possible, will at the
same time not actually trying to predict the future, right,
So I mean, how many different ways can we give
a different complexion on this question for the market to
digest well at the same time saying exactly what you
just said, We're going to be data dependent, We're going
to be watching. You know, the employment picture really empowers
(19:27):
the FED, I think, to hold I don't. I just
don't see a good reason that they need to decrease. Obviously,
it's not that there are no reasons.
Speaker 4 (19:35):
Right.
Speaker 6 (19:35):
We have a deficit and a debt problem that you know,
certainly the government would love to see us, you know,
maybe reduce that burden by lowering rates. You know, we
have obviously politics an election year, not just in the
US but globally, but certainly here. You know, the FED
can't win when it comes to that, right, regardless of
what direction they go, they'll be attacked from one side.
Speaker 5 (19:56):
Or the other.
Speaker 6 (19:57):
So so really they do have these other pressure But
at the end of the day, you started this conversation
in the right place.
Speaker 5 (20:02):
What is their mandate? Their mandate isn't employment and inflation.
Speaker 6 (20:06):
Well, employment looks strong and inflation is not getting back
down to this two percent target. It really didn't ever
look great to get down to two percent, and now
it's looking like it could be stickier. So you know
they're going to be data dependent, but I think it's asymmetric.
Speaker 5 (20:21):
They'll lean towards staying higher for longer.
Speaker 2 (20:24):
Hey, data, Before we let you go, I think we
have to talk a little bit about earnings. I mean,
it's going to be a thick week this week, one
hundred and seventy eight companies within the S and P report,
Big tech is going to dominate. Do you think we're
going to be disappointed here?
Speaker 5 (20:37):
I think it's hard.
Speaker 6 (20:38):
It's really hard not to be disappointed when you're priced
to perfection.
Speaker 5 (20:42):
And I'm sure I know you hear that. You know
it's not revelatory.
Speaker 6 (20:45):
But I also think the other thing, of course, hovering
over all this has been the AI boom.
Speaker 5 (20:50):
And you know, my opinion on.
Speaker 6 (20:52):
This, and I've shared a lot, is that these makers
of AI have been doing really well. But what's starting
to surface is that the users of AI are going
to need a little bit more time. You know that
time is going to be measured in years, not quarters
for actual productivity increases. So while the makers, you know,
at some point their prospects start to have to be
(21:14):
spread out a little bit too, right, because just look
around you to talk to corporate players, everybody's sort of
looking at each other saying, yeah, you know, we're looking
at it, we're exploring it, we're trying to see how
AI can help us. You're not hearing a lot of
great stories about the users of AI suddenly becoming more
productive or figuring out how to best use it.
Speaker 3 (21:34):
So we've had this pretty strong pullback, and earnings really
has been a part of it, because, as you say,
the bar has been set pretty high, but now you've
got really you've got a six percent pullback. So we
are up ten percent in the first quarter, So that
puts us up four percent over about the first four
months of the year for the S and P five hundred.
Does that still feel like lofty valuations and that we've
(21:57):
gone too far too fast? Annualize that would be around
twelve percent gain for the year, right, And that's not
all that far from normal, is it?
Speaker 5 (22:06):
No? It isn't. And I think your your points are valid.
Speaker 6 (22:09):
And if we think that multiples increased dramatically on the
back of the AI story, and then we have some
you know, recognition that that story is going to take
much longer to play out, which is with sort of
where I stand on it. You know, I do think
it's reasonable to think that the market progresses at maybe
a little bit steadier of a pace and not you know,
this jump up. All that being said, it's you know,
(22:32):
one fantastic uh return, a series of returns from one
of these AI makers. I think I think this market,
you know, would eat it up and you'll see an
immediate term kind of positive impact because there is the promise, right,
it's just when does that promise kind of come through?
But you know, with with the volatility that we'll be
coming this year, likely because of the election. And you
(22:54):
know that's not to say whoever wins, right, the returns
generally speaking don't correlate that well. But volatility, you know,
volatility does beget volatility. So with what we have ahead
and annualizing that for and saying, hey, twelve, that wouldn't
be a bad year from my perspective.
Speaker 2 (23:11):
Well, speaking of AI darlings, in Vidia was hard hit
last week. I think the stock was down about thirteen
and a half percent for the week. We don't get
earnings from in Nvidia for another month. I think the
trading desk over at Goldmann, Sachs was describing in Vidia
as the most important stock on planet Earth. Are you
thinking maybe that this has been a significant break here
(23:33):
in the stock or maybe it's a buying opportunity in
the view of many that are still disciples of the
AI trade.
Speaker 6 (23:42):
I think AI is hard for folks to model, and
so these prices you're seeing in these companies that produce
AI components are you know, a lot of it is
based on very forward looking terminal value. These are the
growthiest growth and so that means that the models, you know,
(24:03):
when there's any kind of volatility in the expectation that
it almost gets I won't say they're a lotto ticket.
I think you have to go a little bit into
smaller cap range or what have you. But there's a
flavor of that because the models are not who's modeling
AI used.
Speaker 3 (24:19):
Yeah, that's a good question. Dana, Thanks so much, Dana Doria,
co c Iowa Vestnet.
Speaker 2 (24:26):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify or anywhere else you listen,
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(24:47):
Bloomberg Business app.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
You can join Brian Curtis and myself for the stories,
making news and moving markets in the Apec region. You
can subscribe to the show anywhere you get your podcast
and always on Bloomberg Radio, the Bloomberg Terminal, and the
Bloomberg Business app.
Speaker 3 (00:27):
Max Bonduri, Founder and CEO of SGMC Capital, for a
closer look at the markets, we seem to have entered
a risk off period here, Max, what do you think
is the cause of that?
Speaker 4 (00:40):
Well, the main one, of course is the geopolitical tensions
that we have seen in the Middle East unfortunately, and
if you couple that with the fact that we have
seen inflation numbers remaining higher than what most people anticipated,
and the fact that again these tensions could create the
create an appward spiral with respect to further pressures upside
pressures to the inflation level, then of course this is
(01:03):
why you're seeing quite a bit of risk of that
we have experience over the last in days. And you
couple that with the fact that we've had a strong
start of the year, actually coming off a pretty strong
year all of last year. Then it makes sense for
global investors to start taking profit reducing risks and taking
a look on what is going to happen next.
Speaker 2 (01:21):
Does it confound you a bit that inflation is proving
to be as sticky as it is? I mean, and
here we had one of the FED presidents last week
was Austin Goolsby of Chicago saying that basically the story
on inflation is stagnated. I mean, he's basically saying it's stalled.
Speaker 4 (01:40):
Well, we're not surprised. Every time we spoke last November,
last December, we always said that the FED was going
to cut two maximum three times, so we were never
in the seven to eighth camp. That's because again, going
from an eight nine percent inflation to a four or
five percent inflation is pretty easy. Going from four to
five down to two, which is what the FED wants,
that's a lot lot harder. So we're not surprised obviously.
(02:04):
Now the main question is are we going to be
floating around the current levels gradually declining or are we
going to see a further spike because of everything that
we have been seeing in terms of tension and just
overall demand and supply scenarios, because in the latter case
then that could be quite worrisome for markets because you know,
(02:25):
some banks out there actually starting to talk about hikes.
Now we're not in that camp. We still see about
two cuts, like we've said last year, but clearly it's
a whole difference scenario would respect to what most investors
were expecting in Genuary.
Speaker 3 (02:38):
So it's a dual mandate. The labor market is a
lagging indicator, and it seems like the Fed is waiting
to see you know, what happens with labor. If the
Fed waits until it actually weakens, might that be too late?
Is there a real risk that it waited too long?
Speaker 4 (02:56):
That could be the risk. And to be honest, up
until now, the market has managed to cope with the
changes in expectations quite swiftly, because if you see again,
we went from seven to eight cuts expectations to less
than two by the end of the year and markets
have fared quite decently up until again last week before
(03:16):
the geopolitical tensions. In terms of macroeconomic risks, then yes,
of course, if the FED waits too long, that could
be a little too much. That is again why we
do expect the FED to start doing something and at
least again those one or two cuts this year, But
a lot is going to be dependent on data. We're
seeing growth remaining strong and robust, and that is why
(03:38):
you know the FED is not in any particular rush,
but they will eventually have to do something in order
not to try and break something within the system.
Speaker 2 (03:47):
So do you use this opportunity maybe to reduce your
exposure to the US just a little bit. Maybe you
look at Europe right now, we're talking about a potential
rate cut from the ECB. Germany's shows a little sun
line of maybe improvement. Do you maybe try to get
exposure to underloved markets right now and sell the US.
Speaker 4 (04:09):
Yes, a bit of a rotation makes a lot of
sense from a monetary perspective. Like you've correctly mentioned, the
ECB is going to be acting sooner. They're going to
be more accumulative than the facts, so that could provide
a little bit of support of the markets going forward.
So a bit of rotation out of the US and
into Europe does make a lot of sense, especially because
getting out of the US would normally mean taking quite
(04:31):
a bit of profits, So that is always something that
makes a lot of sense. That being said, the growth
remains a lot stronger in the Yes, if you're looking
at longer term perspective, the US remains the more attractive
market before we do stick with the core exposures within
the US, But of course we have been trimming a
bit of quite a bit over the last few weeks.
Speaker 3 (04:53):
Jeffries pointed out late last week something interesting that net
interest payments for the US corporate sector have actually declined
over this tightening cycle. And that's because the large cash
balances of the big tech companies, combined with listed corporates
refinancing or turning out their debt, and also households did
(05:13):
sort of the same thing. Do you see that as
a positive That maybe doesn't get as much discussion as
it could.
Speaker 2 (05:22):
Well.
Speaker 4 (05:22):
Corporates in general have been a lot more prepared this
time round for the current let's say slow down, even
though slow down in growth is not exactly that, but
in terms of environment with respect to interest rates, they
have been cutting their expenses a lot earlier and a
lot more proactively than it was in the past cycles.
They've probably learned from the past, and even as you
(05:44):
correctly pointed out, from an interest rate payment they have
been doing what they had to. Of course, the large
tech companies are going to be skewing the results a
little bit on one side, but in general, corporates have
been acting quite well and that is probably why you
seeing growth and in general earnings come out pretty decently
(06:05):
and pretty robustly, and that is what is keeping the
economy afloat even though rates are remaining high.
Speaker 2 (06:11):
So I'm curious to get your take on what you're
seeing in China these days. I mean, we were talking
last hour about how disappointing some of the monthly activity
data was for the month of March. I'm thinking industrial
output and retail sales. Yeah, there's a big question mark
over the Chinese consumer. Yes, we know the property market
is still in the process of de leveraging. Is there
(06:32):
enough that would interest you in putting new money to
work in China right now?
Speaker 4 (06:38):
At the moment, it's difficult to increase exposure to China
because once again we know that it's weak and probably
a lot of the negatives are out there. But from
an economic perspective, we're not particularly worried. Yes, we are
obviously in a weak environment and it's likely to remain
that way. But what we need again before putting more
money to work is having more visibility with respect to
(06:59):
the business environment, with respect to the rules and regislations
which are going to be taking place in China, and
with respect to the overall support for the market that
the government and the local authorities are going to be provided,
because again this is the real risk when you have
very little visibility with respect to what is going to
(07:19):
be happening on that front, and that is when you're
going to be then finding yourself holding an industry or
sub names which on paper look very good and in
terms of prospects look very good, but then because of
changes again in the rules or legislations or requirements, then
all of a sudden that play doesn't look so great.
Speaker 3 (07:35):
Yeah, okay, Max, you talked a little bit about rotating
into Europe. What would be your top conviction call at
the moment?
Speaker 4 (07:44):
Well, currently, obviously in the fixed income space, locking in
some of the yields makes a lot of sense. Don't
go too high on the duration risk, and don't go
high actually on credit risk because the credit risk spread
is not particularly interesting. But do look to add the
fixed income exposure in the four to six years kind
of maturity. That for us makes a lot of sense
(08:06):
in terms of the equity we do after the current
correction remain constructive because as mentioned again, growth and numbers
remain decent and robust. But take exposure in a risk
adjusted way before We do prefer long calls rather than
outright purchases. That's because again you are exposed to the upside.
We only have a limited downside should things decline, and
(08:29):
do have a hedging mechanism in mind, whether that's called,
whether that's oil, depending on how your portfoliosposition should and
hopefully not, but should geopolitical tensions rise and.
Speaker 2 (08:41):
Very quickly, Max thirty seconds walk about economics. How are
things in the Lion City right now? How are they doing.
Speaker 5 (08:48):
Well?
Speaker 4 (08:49):
They're doing well, And in terms of perspectives given the
change in leaderships, there's a lot of optimism going around
against Singapore with always a safe harbor in times of
uncertain and that is likely to prove true again going
forward given the environment that we're living.
Speaker 3 (09:05):
Max, thank you very much for joining us. Max Bonduri,
founder and CEO of SGMC Capital, chi Asian Equities portfolio
manager at Rebecco. So Vicky one interesting idea here global
supply chains are always in flux, and at the moment,
(09:29):
moving out of China into other parts of the Asia Pacific,
is that an area perhaps that can be exploited.
Speaker 1 (09:35):
If so, Rare, good morning, Brian Senas to be here
in the studio. Yeah, so this is really what we observe,
and I think a lot of stocks have done really
well in Asia outside China in the manufacturing space. What
we are noticing is that as manufacturing move out of China,
the supply chain further relocates. We noticed that there is
(09:59):
actually capacity shortage for manufacturing outside China. So in China
there is oversupply, but outside China there is not enough supply.
So this benefits a lot of companies in the manufacturing
whether there's light manufacturing or heavy manufacturing space within Asia Pacific.
And we're actually seeing very good share price performance. But
(10:21):
this is obviously not a one thematic that people have
grouped together. So compared to the attention that people have
been paying on AI and on semiconductor supply chain relocating,
I think this would be a very important opportunity for
people to not to miss that there is so much
a growing manufacturing power within Asia Pacific that is not
(10:46):
to be overlooked and obviously very good out of opportunities
for investers.
Speaker 2 (10:50):
So is that South Asia aussion and I'm thinking Vietnam,
but I'm also thinking Indonesia. Are there opportunities for more
manufacturing and Indonesia absolutely so.
Speaker 1 (11:02):
There has been this very interesting data that came out
last week that talks about FDI growth in Indonesia for electrical,
industrial and machinery segments. So that number stood at thirty
five percent year on air, and I think these kind
of numbers typically don't get the headlines, but Indonesia as
(11:24):
a manufacturing upgrade destination is definitely firmly in play. Also,
I think not to forget that actually not large in
terms of marketcap, but in terms of significance for Korea
and Taiwan, there are still very interesting manufacturing opportunities and
actually quite a lot of stocks have done really well
(11:45):
in this space and people just probably paid less attention
to them. And I think going forward, as it is
becoming more of a consensus for more industries to start
relocating outside the China supply chain, there would be opportunity.
Speaker 3 (12:00):
We've always had a Korea discount for various reasons. Some
geopolitical apparently you think that's changing. Now do you think
why why is Korea undervalued at the moment.
Speaker 1 (12:11):
That's a great question, Brian, so I think if we
do nothing, just keep going the way it did, the
career discount is highly unlikely to narrow. So what market
has noticed is obviously this value of program in Korea,
and the career market has responded with great enthusiasm into
(12:33):
the announcement of the news because people recognize that in
Japan we have seen this before. But knowing that in
Japan this it took about eight years before improving corporate
governance and shareholder returns become a sort of consensus in
the Japanese corporate world, it's going to take a long
(12:54):
time in Korem before this actually becomes a real consensus.
This has been a top down drive in Korea, and
what we're seeing is when we speak to companies, there
is a very large difference between the management that are
open and actively thinking about improving shareholder returns by taking
(13:16):
concrete actions to increase payout or improve let's say, the
corporate return profiles, whereas there are companies that basically don't
really care about returns, and if you ask them, they
would say, oh, we have our CAPEX programs, we're going
to invest in one, two, three, and there's no change
to us. So it's going to make a huge difference
(13:38):
for investors whether you're buying those companies that are open
to change and well show concrete actions versus those that
are highly well stable and not changing their attitude. And
we have seen that divergence in the Japanese stock market
very very obviously, so I would expect the same to
happen in Korea. And with the hype kind of going
(14:02):
off a little bit from the from the stock market,
I think there is great opportunity to.
Speaker 2 (14:07):
Make you mentioned Japan, Vicky. I'm wondering if Japan in
any way benefits from the move to diversify out of China,
and if so, how does that manifest.
Speaker 1 (14:17):
It is definitely happening. So Japan has tremendous technology reserves
in many of the manufacturing industries. Uh, it's all pretty
well known. So there's there's machinery, there's obviously semiconductor supply chain.
So I was in Japan in February this year, and
there's obviously tremendous in susiasm for TSMC's new fab in Koshue,
(14:42):
and a lot of related suppliers in Japan have responded
very positively to be able to supply TSMC and this
new fab from within Japan. So the whole supply chain
is very enthusiastic about this development. And there's definitely a
lot of investments going in and there is marketing share
(15:03):
to be taken, so Japan is definitely one of these destinations.
Speaker 3 (15:07):
All right, Vicky, thanks very much. We note for our
audience that you're a little cautious on AI and we'll
save that for our next discussion, which hopefully won't be
too long. Vicki Chi with us age Equities portfolio manager
at Rubeco Dana Doria Cocio invest Net to take a
(15:32):
closer look at the market. It's always good on a
Monday morning to have kind of a lofty discussion data.
We can also get to the news flow as well,
but I'll start off with how the Fed looks at
its mandate, because there's been a lot of discussion of
this of late. Of course, many say that the Fed
waited too long to start raising interest rates, So one
of the interesting questions now is will it also wait
(15:54):
too long to start cutting to avoid a downturn or
will it act early with the feeling of Christians. I'm
curious about your tike.
Speaker 6 (16:05):
Well, I think there's more danger of them waiting too
long than the other way around. I think the FED
is going to be more concerned about letting inflation tick up.
Obviously they can't control what's going on in the global
arena and causing oil prices energy to spike, you know,
which is giving them some consternation around inflation. You do
see wages kind of holding setting and you know growth
(16:28):
there going down, so I think you know they're not
You do hear people asking, hey, are they actually going
to hike rates.
Speaker 5 (16:34):
I don't see that. I can't imagine that they really
want to do that.
Speaker 6 (16:37):
I think that would demonstrate, you know, kind of a
failure in the policy.
Speaker 5 (16:41):
But I do think they'll hold.
Speaker 6 (16:43):
For longer, and you know that may well mean that
we court recession more than you know, higher inflation.
Speaker 2 (16:49):
Yeah, the notion of a hike, that's something that John
Williams brought up last week, which I thought was interesting
as well. And then you heard from Gules be Austin Goolsby,
the head of the Chicago Fed last Friday, who was
saying essentially that progress on inflation has stalled. That may
have been a bit worries. So I guess we'll get
some clarity this week with the PCE data for the
(17:10):
for the month of March. Where do you see this
fight in inflation right now? Do you personally think there
is upside risk?
Speaker 5 (17:17):
Well, yes, I do.
Speaker 6 (17:19):
I mean, just just always being a student of kind
of what's happened historically, right and trying to put the
context around it.
Speaker 5 (17:24):
I mean, you know, it did obviously.
Speaker 6 (17:27):
We had inflation increased very fast and abruptly and then
you know, kind of calmed down in the same way.
But we know historically that inflation doesn't tend to get
tamped down. It can kind of rear back up once
it's once it's spiked. So I do think there's a
danger that, you know, and especially too, as I say,
we look at energy prices, right, so obviously commodities.
Speaker 5 (17:48):
You know, experiencing a spike. It's exogenous due to what's
going on, you know, in war zones, and the.
Speaker 6 (17:55):
Federally has no control over that obviously, right, they have
control over the rate.
Speaker 5 (17:59):
So I do think there's you know, the.
Speaker 6 (18:01):
Possibility that inflation remains stickier than we want it to
and two percent, I think was always kind of a
difficult target. Everybody sort of put that in the back
of their heads. I think, you know, January, we're at
a point where we're expecting six rate decreases this year,
which I always thought was just kind of the market
didn't seem to have a good rationalization for that though,
(18:23):
because you were expecting a swoft landing and you are
also expecting you know, rate costs.
Speaker 3 (18:29):
Yeah, that's why I think you've had this development of
these alternative scenarios that Ben Bernanki has recommended to the
Bank of England, and it's because the FED has found
itself on the back foot because it's putting out a
sort of view that is based on one idea. And
what Bernanki is saying is that since no one really
(18:50):
knows what the economy will do, why not give investors
scenarios and what you might do in those cases. Now
I understand that, but I wonder if it's really all
that different from saying you're data dependent.
Speaker 6 (19:04):
Yeah, I think there's always attempts to shed light and
you know, be as transparent as possible, will at the
same time not actually trying to predict the future, right,
So I mean, how many different ways can we give
a different complexion on this question for the market to
digest well at the same time saying exactly what you
just said, We're going to be data dependent, We're going
to be watching. You know, the employment picture really empowers
(19:27):
the FED, I think, to hold I don't. I just
don't see a good reason that they need to decrease. Obviously,
it's not that there are no reasons.
Speaker 4 (19:35):
Right.
Speaker 6 (19:35):
We have a deficit and a debt problem that you know,
certainly the government would love to see us, you know,
maybe reduce that burden by lowering rates. You know, we
have obviously politics an election year, not just in the
US but globally, but certainly here. You know, the FED
can't win when it comes to that, right, regardless of
what direction they go, they'll be attacked from one side.
Speaker 5 (19:56):
Or the other.
Speaker 6 (19:57):
So so really they do have these other pressure But
at the end of the day, you started this conversation
in the right place.
Speaker 5 (20:02):
What is their mandate? Their mandate isn't employment and inflation.
Speaker 6 (20:06):
Well, employment looks strong and inflation is not getting back
down to this two percent target. It really didn't ever
look great to get down to two percent, and now
it's looking like it could be stickier. So you know
they're going to be data dependent, but I think it's asymmetric.
Speaker 5 (20:21):
They'll lean towards staying higher for longer.
Speaker 2 (20:24):
Hey, data, Before we let you go, I think we
have to talk a little bit about earnings. I mean,
it's going to be a thick week this week, one
hundred and seventy eight companies within the S and P report,
Big tech is going to dominate. Do you think we're
going to be disappointed here?
Speaker 5 (20:37):
I think it's hard.
Speaker 6 (20:38):
It's really hard not to be disappointed when you're priced
to perfection.
Speaker 5 (20:42):
And I'm sure I know you hear that. You know
it's not revelatory.
Speaker 6 (20:45):
But I also think the other thing, of course, hovering
over all this has been the AI boom.
Speaker 5 (20:50):
And you know, my opinion on.
Speaker 6 (20:52):
This, and I've shared a lot, is that these makers
of AI have been doing really well. But what's starting
to surface is that the users of AI are going
to need a little bit more time. You know that
time is going to be measured in years, not quarters
for actual productivity increases. So while the makers, you know,
at some point their prospects start to have to be
(21:14):
spread out a little bit too, right, because just look
around you to talk to corporate players, everybody's sort of
looking at each other saying, yeah, you know, we're looking
at it, we're exploring it, we're trying to see how
AI can help us. You're not hearing a lot of
great stories about the users of AI suddenly becoming more
productive or figuring out how to best use it.
Speaker 3 (21:34):
So we've had this pretty strong pullback, and earnings really
has been a part of it, because, as you say,
the bar has been set pretty high, but now you've
got really you've got a six percent pullback. So we
are up ten percent in the first quarter, So that
puts us up four percent over about the first four
months of the year for the S and P five hundred.
Does that still feel like lofty valuations and that we've
(21:57):
gone too far too fast? Annualize that would be around
twelve percent gain for the year, right, And that's not
all that far from normal, is it?
Speaker 5 (22:06):
No? It isn't. And I think your your points are valid.
Speaker 6 (22:09):
And if we think that multiples increased dramatically on the
back of the AI story, and then we have some
you know, recognition that that story is going to take
much longer to play out, which is with sort of
where I stand on it. You know, I do think
it's reasonable to think that the market progresses at maybe
a little bit steadier of a pace and not you know,
this jump up. All that being said, it's you know,
(22:32):
one fantastic uh return, a series of returns from one
of these AI makers. I think I think this market,
you know, would eat it up and you'll see an
immediate term kind of positive impact because there is the promise, right,
it's just when does that promise kind of come through?
But you know, with with the volatility that we'll be
coming this year, likely because of the election. And you
(22:54):
know that's not to say whoever wins, right, the returns
generally speaking don't correlate that well. But volatility, you know,
volatility does beget volatility. So with what we have ahead
and annualizing that for and saying, hey, twelve, that wouldn't
be a bad year from my perspective.
Speaker 2 (23:11):
Well, speaking of AI darlings, in Vidia was hard hit
last week. I think the stock was down about thirteen
and a half percent for the week. We don't get
earnings from in Nvidia for another month. I think the
trading desk over at Goldmann, Sachs was describing in Vidia
as the most important stock on planet Earth. Are you
thinking maybe that this has been a significant break here
(23:33):
in the stock or maybe it's a buying opportunity in
the view of many that are still disciples of the
AI trade.
Speaker 6 (23:42):
I think AI is hard for folks to model, and
so these prices you're seeing in these companies that produce
AI components are you know, a lot of it is
based on very forward looking terminal value. These are the
growthiest growth and so that means that the models, you know,
(24:03):
when there's any kind of volatility in the expectation that
it almost gets I won't say they're a lotto ticket.
I think you have to go a little bit into
smaller cap range or what have you. But there's a
flavor of that because the models are not who's modeling
AI used.
Speaker 3 (24:19):
Yeah, that's a good question. Dana, Thanks so much, Dana Doria,
co c Iowa Vestnet.
Speaker 2 (24:26):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
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and always on Bloomberg Radio, the Bloomberg Terminal, and the
(24:47):
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